Proactive e-Business Strategy Key to Success for Automotive System Integrators, According to Roland Berger/UM-OSAT Study

   Study Identifies Key e-Business Issues for Automotive System Integrators

    DETROIT, Aug. 7 Automotive suppliers searching for a
competitive advantage need to pursue proactive, strategic e-Business
initiatives.  According to a new study, those companies will be in a position
to advance OEM relationships and realize significant time and cost savings.
    "Automotive System Integrators: Spiders or flies in the e-Business web,"
says that e-Business may lead to reducing product development cycles 20-50% by
2004, which may mean cost reductions in the 10-25% range.
    e-Enabling Relationship Management could also generate significant
savings: estimated savings from improved forecasting are a 2% increase in
productivity, 10% reductions in scrap and rework and 10% reductions in
transportation costs, while inventory reductions can reach 20%.
    The study was conducted by Roland Berger - Strategy Consultants, and the
University of Michigan Office for the Study of Automotive Transportation
(OSAT).  It claims that the development of e-Product Development technologies
can be a double-edged sword for Tier One suppliers.  While top-tier suppliers
will be able to take stronger control of their supply chain, the study warns
that OEMs see e-Business as an opportunity to delegate additional design and
engineering responsibilities and still maintain process control.

    System Integrators expect power shift from e-Business
    According to Antonio Benecchi, Associate Partner in the Automotive
practice at Roland Berger, Roland Berger and OSAT interviewed approximately 50
leading executives from OEMs, Tier Ones and large Tier Two suppliers.
    "We defined System Integrators as Tier One suppliers capable of offering
full engineering, assembly and integration of automotive systems that stretch
across multiple modules and sub suppliers," Benecchi said.  "Our research
showed that the key to determining whether System Integrators or OEMs will
drive e-Business development lies in how System Integrators respond to four
key tensions."
    The transparency dilemma: Data sharing is central to how much value e-
Business initiatives can create.  However, protecting proprietary knowledge is
what provides System Integrators negotiating power with their OEM customers.
"We feel one hundred percent transparency is an unrealistic goal and that
System Integrators will choose a level of transparency based upon a negotiated
relationship with their OEM customers," says Michael Heidingsfelder, Managing
Partner of Roland Berger in North America.
    The standardization dilemma: The approach to systems standardization is
contradictory.  The industry does not want to recreate the problems it
experienced with the adoption of multiple CAD systems.  However, no one is
ready to give up the security of their proprietary systems.  The study
suggests that a powerful third party could create a viable standard, but that
on the whole, proprietary systems will continue to be the norm for data
perceived as competition-sensitive.
    The business case dilemma: The customer is the primary driver of System
Integrators' e-Business investments.  "System Integrators do not seem to be
taking the lead in implementing e-Business," says Heidingsfelder.  "We feel
this is because they are not focusing on the large 'soft' value creating
opportunities in addition to the 'hard' cost reduction potential."  This
forces them into a position of e-Business followers.
    The question of power: Utilizing e-Business technology can enable System
Integrators to take control of their supply chain.  However, the study argues
that System Integrators do not adequately assess the ramifications of e-
Technology on the distribution of power in the industry and that an unforeseen
consequence of transparency may allow OEMs to regain some of the control they
surrendered in the recent past.
    System Integrators are becoming followers in the race for e-Business
    The study focuses on two key e-Business initiatives: e-Enabled Product
Development (e-PD) - the current focus and where the struggle for power is
playing out; and e-Enabled Relationship Management (e-RM) - the "invisible
thread" that System Integrators are largely neglecting.  In both cases, it was
found that System Integrators are struggling with their responses to the key
e-Business tensions.
    e-Product Development is not a single tool.  Instead, it is a chain of
tools, platforms and process that will lead to better integration and
efficiencies in the design process.  In e-PD, OEMs are leading the push for e-
Business solutions and System Integrators seem to accept the "follower"
status.  According to the study, this will limit the industry's move to
standardized systems.  The role of external third parties, like Covisint, is
crucial in establishing standards, which will become visible in the lower
tiers first.
    The study reveals a fundamental difference between what System Integrators
and OEMs see as the ultimate result of e-PD initiatives.  While many Systems
Integrators see e-PD as a way to gain more power from OEMs, their customers
see e-PD as a chance to delegate more engineering and design responsibility,
and still control the process.
    e-Relationship Management is the platform that links a System Integrator's
various contact management, product development, procurement and supply chain
management systems.  Integrating all of this data will require System
Integrators to streamline and coordinate internal processes and to shape their
organization around a single customer focus.  Given the incompatible systems
some companies find themselves with following mergers or acquisitions, this
represents a tremendous challenge.
    Few System Integrators report that they are considering e-RM initiatives,
citing the lack of a business case - most e-RM benefits are "soft," or
difficult to quantify.  While there is truth in this, the authors believe that
the more likely reasons are that the OEMs are not pushing yet for e-RM
solutions and that e-RM requires System Integrators to put their process house
in order first.  However, the current lack of OEM pressures for e-RM
initiatives means an open field for System Integrators to take the lead and
set the rules for what e-RM will mean and how it will operate.

    The bottom line: System Integrators must be proactive
    To capture the maximum value from these initiatives, System Integrators
must act now to influence the outcome of the transparency, standardization and
business case dilemmas in their favor.  The final section of the report
details a road map for companies wanting to weave their own e-Business web.
    Based on several case studies and on previous e-Business experience, the
study describes a sequence of pragmatic steps System Integrators can take to
capitalize on their e-Business initiatives:

    *  Create a reality-based e-Business strategy
    *  Understand the tactical options
    *  Plan carefully
    *  Implement, refine and revise

    "e-Business is not just another IT project," summarizes Heidingsfelder.
"Only companies with a clear and realistic e-Business strategy will emerge as
winners in the automotive industry."

    Roland Berger is one of the leading strategy consultant firms in the world
and the largest of European origin.  Founded in 1967, the firm has 31 offices
in 21 countries with more than 1500 consultants worldwide.
    Roland Berger's e-Business Practice offers extensive know-how and do-how
through over 200 major e-Business projects in the past two years.  Roland
Berger is the acknowledged leader in facilitating established brick and mortar
companies to e-Transform key process to achieve top line growth and process
efficiencies.  The Company also supports e-Business start-ups to develop into
major market players.
    More than 130 dedicated consultants in Roland Berger's Automotive
Competence Center address all areas of business expansion and performance
improvement along a manufacturer's value chain.  Since 1990, the Competence
Center has successfully conducted more than 1000 projects for leading
automotive manufacturers and suppliers worldwide.
    For more information and a copy of the study, contact Roland Berger at
248-729-5000.
    For more information about Roland Berger Strategy Consultants, visit the
website at http://www.RolandBerger.com .

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